Smart Saving and Investing

Subtitle: We’re Goin’ To Hawaii!!

Don’t Buy Variable Annuities. Why? Because they could provide your money manager with a free trip to Hawaii on you right from the get go (when you first fork over your cash).

Well, that’s not the only reason and it’s not the only investment that could do that.

There are different annuities (variable, fixed, etc.), but here’s the downside on variable annuities and they’re just not worth getting into. Besides being confusing as heck for some folks, sometimes the financial person trying to sell them doesn’t come right out and tell you they are annuities.

Variable Annuities are a family of mutual funds you can invest in by an insurance company. They can:

1. Have the highest commissions and that’s why some of the financial folks sell ‘em. (Trip to Hawaii part)
2. You have a limited number of investment choices. There might be 20-30 funds in the annuity but there are tens of thousands of funds out there to choose from. What are the odds that the annuity has the best 20-30 funds to choose from?
3. Fees and expenses can be very high. Over time could possibly be 20% right off the top of your earnings. (Trip to Hawaii part)
4. Taxed as ordinary income - could be taxed much higher than investing in the same mutual funds outside of the annuity.
5. If you take money out the first year it could be charged 7% or more.
6. And a host of other rules and regulations. Just say ‘No’.

Again, it would be better to invest in mutual funds that are going to work for you from the get go.

written by Bill Stevens

After searching the web for a brief description of the advantages, disadvantages and rules of a Roth IRA, I thought I’d add mine to the mix:

Advantages

• You can contribute to your Roth IRA after age 70 1/2, unlike the age limitation of a traditional IRA.
• You can contribute up to $4,000.00 for 2007 if you’re under age 50 and up to $5,000.00 if your 50 or older.
• You can contribute to a Roth IRA even if you contribute to your employer’s retirement plan.
• You can withdraw what you’ve contributed to the Roth IRA tax-free but not what you’ve earned.
• You can withdraw tax-free for first time home buyers.
• Withdrawals are tax-free upon death or disability.
• There is no Required Minimum Distribution (or Minimum Distribution).

Disadvantages

• Withdrawals in excess of what you’ve contributed are fully taxable and ar also subject to a 10% penalty.
• Contributions are limited each year for each individual.

Rules

• You need earned income.
• Single folks can only make up to $95,000.00
• Couples can only make up to $150,000.00.

But for our purposes we don’t care about the disadvantages. We want the freedom of picking where we hold our Roth IRA - Charles Schwab, TD Ameritrade, etc. We also want the freedom of picking tons of investment vehicles, for example Mutual Funds, under our Roth IRA.Feel free to read the ever popular 107-page IRS Publication 590 here for the rules. Kind of drab reading but it’s all there.

Idea: Some people forgo an online savings account and use a Roth IRA as kind of a savings account. However, for our purposes here, we want to use the Roth IRA for retirement reasons. But, the Roth IRA as a savings account is totally acceptable.

written by Bill Stevens

NEW YORK (MarketWatch) — So you’re one of the lucky taxpayers receiving an income tax refund this year? The IRS estimates that the average refund will be $2,548. While it’s tempting to spend that chunk of change on a plasma-screen TV or a fabulous vacation, consider using it to firm up your financial future.

Bill Stroh, co-CEO of Bills.com, says that “many tax refund recipients dream of ways to spend that cash. But before getting carried away in a spending fantasy, think long term. A tax refund is not really a windfall, but a return of your own money to you. Tax refunds are a forced savings plan from the IRS … not a gift. That shift in your mind may make it less likely that you will squander the refund.”

Here’s how you can spend your refund wisely:

• Pay down debt. Use the refund to get rid of high-interest debt, such as credit-card balances. Stroh also suggests slashing your mortgage and car payments.
• Create an emergency fund. You should have six to nine months worth of living expenses in your fund. Your refund can provide a good foundation.
• Buy insurance. If you’re not covered adequately with the proper health, auto, home or renters insurance, now is the time to get it.
• Save for retirement. Stash some of your refund into your 401(k), Roth IRA or other retirement-savings plan.
• Put the money back into your home. Take care of minor and major home maintenance so that you don’t have to deal with bigger, more costly problems later.

Marshall Loeb, former editor of Fortune, Money, and the Columbia Journalism Review, writes for MarketWatch.

written by Bill Stevens